Pitcher Partners Investment Services (Melbourne) | The information in this article is current as at March 24, 2025.
In his past Presidency and re-election campaign, Donald Trump has made it quite clear that he has little appetite or tolerance for progressive initiatives in relation to ESG (Environment, Social and Governance) matters.
In his short (yet very busy) second term so far, he has backed this up with many actions including:
- withdrawing (again) from the Paris Climate Agreement;
- revoking orders aimed at tackling the climate crisis;
- freezing funding for the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act, both of which were targeted at renewable energy infrastructure projects;
- declaring an ‘energy emergency’ to justify the expansion of oil and gas production, including in previously untouched areas of Alaska;
- revoking former president Biden’s non-binding goal for electric vehicles to make up half of new cars sold by 2030;
- flagging an intention to repeal a $7,500 tax credit for new electric vehicle purchases;
- appointing Robert F Kennedy Jr, a well-known vaccine sceptic, to lead the Department of Health and Human Services;
- rescinding DEI (Diversity, Equality and Inclusion) policies in the Federal Government; and
- outlining a hard-line approach to immigration and citizenship and slashing foreign aid.
Some of these actions are already being challenged or are likely to face legal challenges, meaning they may not be implemented as announced. Some may, however, have significant impacts for financial markets in general and/or particular sectors in the future.
The results of these actions could be widespread and may impact many different types of investments. However, the purpose of this article is to explore whether ESG funds in particular may experience greater impacts than more traditional managed funds. While most fund managers these days take ESG matters into consideration to some extent, we consider ESG funds to be those that consciously place a high level of focus on these factors. Such funds typically brand themselves as ‘sustainable’, ‘ethical’ or ‘impact’.
While the approach to ESG investing varies considerably from one fund to another, some general trends have been evident in recent years, including:
- Underweight exposure to the energy, utilities and resources sectors, particularly the companies within those sectors most involved with fossil fuels;
- Overweight exposure to the healthcare sector; and
- Overweight exposure to the technology sector.
Potential impacts
So how might these sectors and funds be impacted over the remainder of Trump’s presidency?
We expect impacts to vary by region, sector and company, and we have been in close communication with ESG fund managers on our Approved Product List in recent months to gather their insights and track their adjustments. Some thoughts and observations are outlined below.
Australian funds
For Australian ESG funds, we expect the impact to be limited. Unlike the US, Australia’s regulatory and institutional investment framework remains committed to sustainability. Mandatory climate reporting for ASX-listed companies is reinforcing corporate accountability, while superannuation funds and major banks continue to drive the transition towards low-carbon investments. The financial sector remains a key enabler of Australia’s energy transition, with ongoing capital allocation towards renewables, infrastructure, and sustainable business models. Despite a slowdown in global decarbonisation efforts, Australian companies remain committed to their net-zero targets, although many are back-loading their commitments in anticipation of further technological advancements. The structural tailwinds supporting ESG investing in Australia remain strong, with increased scrutiny on modern slavery, cybersecurity, AI governance, and workplace laws shaping corporate ESG disclosures and risk assessments. We note that the Federal Budget just handed down by Treasurer Jim Chalmers includes further investment into renewable energy and low emissions technologies and an expansion of the Clean Energy Finance Corporation.
Conversely, fossil fuel companies are facing ongoing structural challenges. While natural gas remains a necessary transition fuel, institutional investors are gradually reducing exposure to thermal coal, reinforcing the long-term shift away from carbon-intensive industries. Export-driven industrials and manufacturing firms may also face headwinds if trade tensions between the US and China escalate, potentially impacting Australian commodities and broader economic growth projections. Companies that lag in ESG integration could also struggle, as investors and regulators continue to demand greater transparency and accountability in corporate sustainability strategies.
While it has been a very short period so far, recent return data may provide some clues about the sensitivity of various sectors and funds to Trump’s actions.
In the month of November 2024 (during which Trump won the US Election and made his agenda clear), we saw a strong rally in the technology, financials and consumer discretionary sectors and weakness in the resources and energy sectors. This was actually very favourable for ESG funds and we saw the passive ESG Exchange Traded Funds (ETFs) on our Approved Product List (APL) materially outperform the market.
In January this year (the month in which Trump was inaugurated and made many of the announcements outlined above) we saw the passive ESG funds on our APL perform broadly in line with the market, with most sectors experiencing a similar rally.
Across the four months to 28 February (which includes both the Election win and inauguration), we saw the passive ESG funds on our APL modestly outperform the broader market. The active ESG funds on our APL saw similar outcomes as the passive funds overall, though returns were a little more mixed, depending on each fund’s stock selection decisions.
Global funds
While the global share market involves many countries and sectors which will each experience differing impacts from Trump’s policies, it is a market that is presently heavily dominated by the US, which represents approximately 75% of the MSCI World Index.
The global market reaction to Trump’s election has been marked by sharp sector rotations, major shifts in fund flows, and a realignment of investor priorities. Investors moved aggressively into pro-growth sectors such as financials, technology, and consumer cyclicals, reflecting expectations of deregulation, AI-driven expansion and corporate tax cuts. Pre-election market uncertainty had driven defensive positioning, with significant outflows from financials, real estate, and health care.
While some green energy projects in the U.S. remain at risk due to Trump’s actions, particularly in electric vehicle infrastructure, a full repeal of IRA incentives is unlikely. Much of the IRA funding has already been allocated, with a significant portion directed towards Republican-controlled states, making widespread rollbacks politically challenging.
Despite Trump’s support for fossil fuels, the energy sector has so-far failed to gain traction post-election, indicating investor scepticism about the long-term trajectory of energy prices. Healthcare firms, particularly those reliant on government policy and regulatory frameworks, may experience increased scrutiny.
We have already seen our active ESG managers make some changes within their portfolios, with some for example reducing exposure to companies vulnerable to a slowdown in the rollout of clean energy assets.
In November 2024 in the global markets (as measured by the MSCI World Index), we saw similar trends to those in Australia, being a strong rally in the financials and consumer discretionary sectors. However, unlike Australia, the technology sector was not so strong, perhaps as US valuation levels had already risen so high, while the energy sector experienced a similar rally to the broader market. The passive ESG Exchange Traded Funds (ETFs) on our APL modestly underperformed the broader market.
In January this year, we saw the technology sector materially underperform the market while the healthcare sector strongly outperformed. Energy and resources rallied in line with the market and the net result for the passive ESG funds on our APL was a slight outperformance for the month.
Across the four months to 28 February, we saw the passive ESG funds on our APL underperform the broader market by approximately 3%, primarily due to weakness in the technology and healthcare sectors, particularly in February. The active ESG funds on our APL saw similar outcomes as the passive funds overall, though returns were a little more mixed, depending on each fund’s stock selection decisions.
Conclusion
While Trump’s anti-ESG announcements to date have added significant uncertainty for ESG funds to navigate, this does not mean that they will underperform the broader market in the future. There has been little impact on Australian ESG funds in the first few months of his new term and the underperformance of Global ESG funds in that timeframe will not necessarily continue because:
- The broader market is also navigating significant new uncertainties, particularly in relation to tariffs. The energy sector, for example, is particularly vulnerable to a global trade war that could dampen economic activity;
- Markets may have already priced in the expected short to medium-term impacts from Trump’s announcements; and
- The long-term outlook for the themes, sectors and companies that are typically targeted by ESG funds remains very positive.
Hence, in our view, the longer-term thesis for ESG investing remains intact.
